Income approach
Valuing a property based on the income it produces, often by dividing net operating income by a cap rate. It is used mainly for rentals and commercial property.
Also called: income capitalization approach
Related terms
Net operating income divided by the property's price or value. It shows the yearly return before financing and is used to compare properties and estimate value.
A property's yearly income minus operating expenses, before mortgage payments and income taxes. It is the base number for cap rate and many commercial valuations.
Price divided by gross yearly rent. It is a quick screening tool for comparing rentals, but it ignores expenses and vacancy.
The main way homes are appraised: comparing the property to recent similar sales and adjusting for differences.
Valuing a property by estimating land value plus what it would cost to rebuild the structure, minus wear and age. It is most useful for new or unusual buildings.